A look at H2Os buoyant bond fund

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H20 Multibonds has blown way past the sector, but what is the downside?

The Multibonds Fund, run by Natixis affiliate H2O Asset Management and available for sale in Singapore, must be treasured by investors.

No matter which time period you look at, the fund has been the clear top performer out of the 170 or so peer funds in the global bond category:

H2O Multibonds performance vs the sector

Source: FE. Data to 16 April 2019. In euros.

During the more volatile year of 2018, it was again number one out of 168 funds in its category with a 25.8% calendar year return.

The last quarter of 2018, when global markets plunged? The fund was up 9% versus the sector average (0.99%).

Morningstar awards it five stars, FE gives it four (out of five) crowns. The fund has had the same co-managers, Jérémy Touboul and Bruno Crastes, since its inception in August 2010 and has AUM of €4bn ($4.5bn).

The portfolio invests in global debt and currency markets. According to the factsheet dated 28 February 2019, the portfolio has roughly 60% in cash bonds and 40% in cash and money market products.

“The investment strategy is based on a ‘top-down’ approach, and relies in particular on macroeconomic analysis, an analysis of capital flows and an appraisal of market valuations,” according to the prospectus.

The managers have at times picked the more risky but higher yielding government bonds. For example, at the end of 2018, 25% of the portfolio was invested in Italian government bonds, 12% Mexico and 8% in Greece, according to Morningstar.

Hedge fund in disguise?

The fund charges the investor a performance fee of 25% of the outperformance relative to the Euro OverNight Index Average (EONIA) +2.6%.

Currency trading tends to drive portfolio returns, according to Luke Ng, vice president of FE Advisory. “It’s not run like a traditional global fixed income fund. The key attribute is currency exposure, which has risk and nature very different from fixed income funds.

“It can also invest in the full spectrum of fixed income and use leverage-like techniques to get more than 100% exposure to an instrument. It is more like a hedge fund.”

There is downside, however: super-volatility.

Volatility exceeds that of all peer funds. Over a three-year period, out of 185 peer funds in the global bond category, H2O’s product had 16.91% (annualised) volatility, about 5x more than the category average of 3.41%.

Over a five-year period, the fund had 18.25% volatility compared to the category average of 3.60%.

As seen in the market downturn during Q4 2018, the Multibonds ride is definitely more of a roller coaster than the global bond sector average:

Multibonds vs the sector Q4 2018

 

 

 

 

 

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